Part 1: Sales or Succession
Considering what exit path is right for your business.
There are only 2 things certain in life: death and taxes. The same is true for businesses, but death is avoidable for a business with a proper sale or succession plan in place.
Path 1: Succession
You can pass the business on to family or employees, and certainly, that is the right path for some people. However, this may not be the best financial decision, for you or your successor who inherits the business.
A University Kellogg School of Business study found that 70% of the businesses that passed from one generation to the next failed, and 87% failed to move into the third generation. The odds are stacked against your successor.
There are a plethora of nonfinancial reasons to pursue the succession path. If succession is the right path for you, I recommend you start planning early. Speak to an estate planning professional to find the right vehicle and method for the succession and to avoid large tax obligations that can come as a surprise.
More importantly, consider whether the successor is ready and able to take on the helm of your business. If not, what can you do today to make that transition easier?
Path 2: Sale
A partial or complete sale of the business is the best option for an entrepreneur looking to ensure their company and legacy are intact for generations because:
Financially this option is the most lucrative. A sale of your business can be a life-changing event, affording your financial independence. The sale also allows you to diversify your wealth so that it is better preserved for future generations. If you are like most small business owners, 80-90% of your wealth is tied up in the business – that is an awful lot of eggs to put in one basket.
Affords you the option to be involved with your business post-sale. You can continue to stay as much or as little involved as you like depending on the structure of the deal, which, depending on the buyer, you can negotiate.
With the right partner, the business can grow beyond what you can do alone. Beyond the financial benefits, you may want to extend your legacy, get operational help, or find new sources of capital. The right partner in a sale may be able to provide this support.
In conclusion, choosing the right path for yourself is a particularly important decision for entrepreneurs today and the first step towards exit planning. I encourage you to take action today and start planning your exit. I also encourage you to let New Zephyr be a part of your conversation and see if we can be helpful to you.